Steinmetz Verdict May See Flight of Capital From Switzerland

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(February 4, 2021): GENEVA - Foreign business head-quartered in Switzerland are rethinking their relationship with that country. This follows the Beny Steinmetz corruption court finding and newly invoked draconian measures, Switzerland is applying to corporations. Business leaders are questioning the advantages of maintaining a presence in a Swiss canton. The removal or relaxation of bank secrecy laws, aggressive anti-monetary procedures and a legal environment which is not business friendly, are factors that think tanks believe are reasons not to do business in Switzerland.

Several foreign companies head-quartered in Switzerland, polled for this article, indicated that they were considering relocating their headquarters in other countries.  Switzerland, once a safe haven for the wealthy and an attractive jurisdiction for head offices, could see massive capital outflows.

In January 2021, French-Israeli mining magnate Beny Steinmetz was convicted of bribery and corruption, in a Swiss court. The charge was that Steinmetz allegedly paid a wife of former-president of Guinea, Lansana Conté, $10 million. The payment ostensibly entitled Steinmetz to iron ore mining rights in Guinea, West Africa. Although there were never any direct payments by Steinmetz and he denies all the charges, the court found him guilty, lumping him with a $50.5 million fine together with a 5-year prison sentence.

Legal analysts accuse Switzerland of overreach and poaching, stating that the court decision suggest that Switzerland has much broader jurisdiction than the law permits. Claudio Mascotto, a senior prosecutor at the Office of the Geneva Attorney General has admitted that cross-border prosecutions are challenging. In an interview, he conceded that prosecutors push the envelope and legal boundaries which the law sets.

The Steinmetz charge is apparently a result of an aggrieved ruler, disenchanted by his predecessor’s wealth. For all intent and purposes, the Steinmetz case would never have started, if not for the former President’s demise.

The Steinmetz case underscores the question of legal enforceability for contracts that were procured with the incentive of a bribe. The reality is that if corruption and bribery were yardsticks for establishing legitimacy and enforceability of an agreement, eighty percent of African contacts would be invalid.

In Nigeria for example, a government tender requires that the bidding party articulate its bribe with the bid. That is the standard. It is the recognized way of doing business. In South Africa anyone biding for a government contact will tell you, that paying the bribe is fair game.

Business leaders believe Beny Steinmetz was a victim of the system. If Steinmetz directly or indirectly did in fact pay a bribe, he would be doing what in Africa is considered the norm. It’s the reason why a Swiss court had to domain the allegations against Steinmetz in Switzerland, a country which does not share the same business standards or ethical considerations as those in Africa. 

No one disputes that China is stripping Africa of its natural resources. Investigative journalist Tom Burgis in his book, The Looting Machine, describes how corrupt leaders and big money are usurping the continent’s natural resources, while the nations themselves remain impoverished. But surprisingly, China or the conglomerate Rio Tinto, both of whom are active in securing mineral rights in Africa, have escaped the wrath of prosecutors and accusations of bribery and corruption.

In banking there’s an expression which the Federal Reserve and lenders of the last resort use. It’s called: “Too big to fail.” The term is applied in the case when an institution cannot be allowed to fail, because the repercussions on the banking system, will be too big to absorb. In the prosecutor’s office, the equivalent of that term is: “Too big to take on.” China and Rio Tinto are considered too big to take on, because the political fallouts would be huge. Steinmetz was low-hanging fruit for Swiss prosecutors and an easy target

A Forbes 100 CEO, who di not want to be named, said, “If anyone should be biting the bullet, it is the corrupt leaders who are literally stealing from their country’s resources.” These leaders have a fiduciary duty, a responsibility to their country and people. The resources which they peddle are like loose change on the side walk. If Paul doesn’t scoop up the spoils, Peter will. That practical application is what drives the principle of the Efficient Market Hypothesis and bribery in Africa.

Legal analysts say that Steinmetz or his company were the wrong target. The former President Lansana Conté’s and his associates are the ones that should have been brought to book. They are the ones who ostensibly penned the agreement to relinquish their country’s rights to the mineral deposits, if ever there was one.

Either way, serious legislative reform is required. The Steinmetz case is a test case, dealing with charges that do not in essence violate the statute or case law. The Steinmetz ruling takes the application of the law to a new level. It sets a new precedent. While it is doubtful that the court decision will be upheld on appeal, if it does, every business in Africa has to question its viability in Swiss terms. Swiss banks may as well close shop to African clients, or businessmen who have interests there. Both the banks and African businessmen will become targets.

Legal experts say that using the courts to dictate the law is wrong. The procedure is know as Judicial activism. If authorities and regulators want to bring foreign businessmen to book, for actions that occurred outside the prosecution’s legal jurisdiction, then law makers need to provide for that anomaly. Not doing so is a violation of an age old ethical code.

Previous efforts to legislate the provision into law have failed. Civil society organizations have lobbied for proposals that would add accountability for businesses headquartered in Switzerland, for their actions abroad. One such proposal, which would have held companies based in Switzerland liable for the actions committed by subsidiaries abroad, failed in a referendum last year.

The decision by the Swiss court is one which is inspiring frowns and cross-eyed appraisal by the legal fraternity. Law experts question the validity and arguments of the Swiss court in finding Steinmetz guilty. Big business ponders whether Swiss courts are not just focusing on the end result, to justify the means. Many corporations are not taking chances.

ABOUT THIS ARTICLE:

A decision in a Swiss Court finding mining magnate Beny Steinmetz guilty of bribery and corruption sets a new legal precedent in the level of culpability that may be attributable to associated parties.  An exodus of foreign capital is expected. Banks are set to cull African clients.

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